Is India's "free broadband" a good idea?

Submitted by acohill on Mon, 04/30/2007 - 10:02

India has announced an ambitious plan to provide free wireless broadband throughout the country.

It is not at all clear that "free broadband" is sustainable. The longstanding problems with free services (in any market, not just broadband) include market distortion and low quality service.

Market distortion occurs because "free" services suggest to users of the service that supply is inexhaustible, and so users use as much as possible. Not everyone thinks this way, but a small number of users who hog bandwidth can consume all available supply.

This leads to low quality of service, in part because there is no pricing feedback to users (see above), and in part because the lack of revenue makes it difficult to expand capacity as demand increases.

In fact, fees alone do not guarantee a sustainable business model. In the U.S. and most other markets, the current broadband business model is upside down. Service providers enjoy maximized profits when customers, paying a fixed fee for Internet access, don't use the service at all. Service providers make the least profit if customers
like the service and use it a lot.

From an economic perspective, charging a fixed fee no matter how much bandwidth a customers uses is exactly the same as giving the service away for free. Neither one provides the funds necessary to expand capacity, increase service areas, pay for proper maintenance and upkeep, and add new services.

A solution is to move to a service oriented architecture (a different network architecture AND a different business model) that conveys a clearer relationship between supply and demand to customers. Customers pay for services, rather than buying a bucket of bandwidth. Service fees are based on the real cost of providing the service, thus providing information to customers about supply and demand. This can be done easily with both wired and wireless networks.

If the Indian government is going to build a digital road system and let private companies use the road system to sell services in return for a share of revenue, the system could work very well.

Providing a free 2 megabit connection but no services is very similar to the way roads are managed--governments build roads but allow businesses and customers to use those roads for entirely private business transactions.

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